Factories to Teams – the Nature of the Firm in the 21st Century

The article “The Nature of the Firm” by Ronald Coarse is a cornerstone of management theory. It attempts to answer the question “why do we need companies to organize people?”. It was written in 1937. Is it still relevant today?

Let’s go back a few more decades, to the theories of Frederick Taylor. Taylorism is the word we use for describing the top-down controlled, structured and rational factory – or office.

This model was well suited for the era of mass production and mass marketing. The one who could build the largest factory won. Process, structure and organization were the key drivers of the Taylor era, the artifacts you wanted to manage.

But as we moved up the hierarchy of needs and the pace of change accelerated, another model emerged. We started working in projects.

The project format helps you optimize time and resources to achieve an objective. We no longer produced only the same item as many times as possible – we needed a more flexible way to organize work. A project has a beginning and an end (usually), it can be staffed, have a budget and a manager. A project can scale in to multiple sub projects in different phases and so forth.

A project is more flexible than a factory and the focus shifted to managing time and resources.

But we are now clearly moving towards another model. We believe it is one in which the team is the fundamental building block of the firm.

A company in this third era of organizing is more like an organism with cells than a factory. The focus is on people and their internal drives and motivations and the winner is the one most skilled at seizing opportunities.

Companies are organized like (investment) portfolios of opportunities and the best ones attract talent by existing for a clear cause. The WHY you exist is at least as important (if not more) as WHAT you do.

The Agile movement represents in many ways the leap from the project centered era over to the team-centered, but that transition is far from finished. In many ways, we see it as our mission to accelerate this shift.

So, yes, the Firm is still relevant. But it looks very different from the firm of 1937 when Coarse wrote his article.

“Our economy is in the midst of a grand shift toward the Hollywood model. More of us will see our working lives structured around short-­term, project-­based teams rather than long-­term, open­-ended jobs.”

Exactly. Look to the film or video games studios (or Startup Studios…) to understand what the future of work and the firm looks like.